Just when you think the financial news from the U.S. couldn’t get any worse, it does, said Robert von Heusinger in Germany’s Frankfurter Rundschau. In a shocking turn of events, Lehman Brothers, one of Wall Street’s biggest investment houses, announced this week that it is going bust—which means that every European bank or fund that did business with Lehman is now at risk. Add to that the cut-rate sale of Merrill Lynch and the threatened collapse of AIG, one of the world’s biggest insurers, and it’s starting to look like Wall Street is completely melting down. “If things go really bad, taxpayers in Europe, including Germany, will have to pay billions of euros to rescue their own banks, which will reduce returns on pensions and life insurance and worsen our unemployment crisis. Thanks, America!”

It’s as if the “innermost sanctum of the global capitalist system” has “suddenly collapsed,” said Anatole Kaletsky in Britain’s The Times. Indeed, when the U.S. nationalized Fannie Mae and Freddie Mac two weeks ago, it essentially conceded “the complete failure of the biggest, most dynamic, most innovative and competitive markets that have existed in the history of capitalism—the Wall Street stock market and the market for U.S. bonds.” Nationalizing the two companies punished the stockholders severely, and the consequences for the world will be profound. Governments in Asia and the Middle East will now be extremely unlikely to invest in any U.S. bank for fear of losses, and because Western financial institutions are so closely linked, they will be similarly leery of European banks. Given that Saudi Arabia and China are huge players in global markets, this is a chilling development.

American banks created this crisis by lobbying for deregulation, said Mark Tran in Britain’s The Guardian. All through the 1980s and ’90s, the U.S. banking sector lobbied for repeal of the Glass-Steagall Act, an FDR-era reform meant to prevent a repeat of the 1929 crash. In 1999, the banks finally succeeded in gutting the act. Since then, they have been “able to re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s—lending to speculators, packaging and securitizing credits and then selling them off, wholesale or retail, and extracting fees at every step along the way.” The result is the mess we’re in today.

“Clearly, the rules need rewriting,” said the Hong Kong South China Morning Post in an editorial. But the U.S. is in the middle of a presidential election campaign—hardly the best time to make sober, rational decisions on how best to rein in the financial industry. Congress may choose not to act until there is a new administration in the White House. Meanwhile, the world could be heading for a global recession. And “no one knows where the downward spiral will end.”